Japan’s cabinet approved a new economic stimulus package of 880 billion yen Friday just weeks before an election the ruling party is expected to lose, while analysts questioned its likely benefits.
The new spending of 880 billion yen (HK$83 billion) was more than double a package announced in October as the country gets set for polls that most say will usher in its seventh prime minister in six years.
The move, which came as official data showed Japan posted a surprise uptick in factory production last month, will also likely trigger vote-buying criticism from opposition lawmakers.
The spending — which will come out of reserve funds — will focus on boosting growth in a range of sectors, including healthcare and agriculture, as well as on public works projects following last year’s quake-tsunami disaster.
Opinion polls suggest Prime Minister Yoshihiko Noda and his Democratic Party of Japan will be defeated by main opposition leader Shinzo Abe who heads the Liberal Democratic Party.
Abe has vowed to spend heavily on public works and pressure the Bank of Japan into launching aggressive monetary easing measures to boost growth if his party win the December 16 vote.
The BoJ has unveiled two policy easing measures since September.
Japan’s economy contracted in the July-September quarter, nudging it toward recession and dousing hopes the nation had cemented a recovery after last year’s quake-tsunami disaster, which triggered the worst atomic crisis in a generation.
The Nikkei has surged 9 percent while the yen has weakened over the past two weeks after Shinzo Abe, leader of the main opposition party, called for the central bank to set an inflation target of 2 percent and embark on “unlimited easing” to pull the economy out of its decade-long deflation.
The rally produced a 5.8 percent rise in the benchmark Nikkei this month, its best monthly performance since February.
However, the effectiveness of the government stimulus package has been questioned.
US fiscal cliff talks remain the key short-term driver of the market. Treasury secretary Tim Geithner presented a plan to Congress, which is said to include USD1.6trn in tax increases, USD400bn in spending cuts, around USD50bn in new spending and a lift of the US borrowing limit. The initial response was not positive with Republicans in Congress who called it ‘completely unbalanced and unreasonable’. Both Democrats and Republicans still say that they are confident that a deal can be reached, which together with yesterday’s strong pending home sales perhaps explain why US stock markets still managed to close higher – with the S&P500 index up 0.4%.
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